Gulf investors hot on Turkey private equity trail

Dubai, May 23, 2012

Growth capital and buyout funds from the Gulf region are being drawn towards Turkey's stable and growing economy at the expense of countries in the Middle East, still prey to the violence of the Arab Spring popular revolts.

With 8 percent economic growth last year, a stable socio-political environment and a mostly youthful population, Turkey has attracted the top Gulf private equity funds including Abraaj Capital, Investcorp and NBK Capital.

'At least 25 private equity firms from the Mena (Middle East and North Africa) region are looking at deals in Turkey,' said Imad Ghandour, managing director of CedarBridge Capital and co-founder of the Mena Private Equity Association.

'Turkey offers two things: stability and well-diversified deal flows from agriculture to financial services, education and healthcare,' he said.

The European Commission last week raised its economic growth forecasts for Turkey to 3.3 percent for this year from 3 percent, and to 4.6 percent for 2013, from 4.1 percent.

At least 10 private equity deals have been closed in Turkey in the past two years and more are expected this year as companies favour the country's political environment and better regulation compared to some countries in the region.

Private equity investments in Turkey are also gaining traction because of the exit options available, a key cause for concern for investors in most other Gulf Arab nations where strategic sales have become the only available option.

According to a report by the Wharton School of the University of Pennsylvania and Saudi-based private equity firm Amwal AlKhaleej, only 14 of 218 investments made by regional PE funds in 2004-09 have reached exit.

Unlike most other countries in the region, Turkey offers a highly liquid stock market where daily trading volumes average around $1.5 billion, compared with around $80 million in Dubai for example, giving investors the stock market as an exit route.

'Top-performing and well-managed Turkish companies have numerous exit opportunities, including to large domestic and foreign strategic players and through the IPO route on the Istanbul Stock Exchange,' said Selcuk Yorgancioglu, senior partner and head of Abraaj Capital's Turkey office.

NBK Capital, the investment banking arm of National Bank of Kuwait, is looking to cash out in an initial public offering of part of its investment in Turkish food and beverage company Kilic Deniz.

M&A deals with Turkish targets shot up to 218 deals worth $24.9 billion last year from 167 deals worth just $4 billion in 2009, when activity was hit by the last global economic slump, Thomson Reuters data shows.

Dubai-based Abraaj is among companies interested in bidding for the media assets of Turkey's Calik Holding, ATV television and newspaper Sabah, sources told Reuters earlier this year.

In January, Abraaj sold its 50 percent stake in Turkish hospital group Acibadem to Malaysia's state-linked investor fund Khazanah Nasional and its healthcare unit in a deal that valued the company at $1.68 billion.

'Turkey has a large and liquid stock market, very efficient regulatory environment and deep bond markets which gives large institutional investors confidence,' says Abraaj's Yorgancioglu. 'Turkey is not a fly-in and fly-out market ... Deals need to be executed on the ground by people who are on the ground. It's not a market that you can half-play,' he added.

Dubai-based Eastgate Capital Group in January applied to acquire a 49.8 percent stake in Turkish textile maker Fabeks Ticaret from its owners, the Zamanpur family.

And international private equity firm Carlyle Group , through its Mena fund, in January acquired a 48 percent stake in Turkish private education provider Bahcesehir Koleji for an undisclosed amount. Previous investments made by Carlyle Mena include buying into Medical Park, Turkey's second-largest healthcare group, in December 2009.

In Bahrain, alternative investment manager, Investcorp , which manages about $12 billion of assets and has a $1 billion private equity fund, is actively looking at deals in Turkey and plans to invest up to $400 million in companies in Turkey and the Gulf region by the end of 2013.

Following Investcorp's acquisition of a $50 million stake in Turkey's Tiryaki Agro, a trader of agriculture commodities, in 2010, the company is now looking at companies in retail, both food and consumer products, healthcare, logistics and supply chain management, said James Tanner, head of corporate investments, Mena at Investcorp.

'Turkey has its own domestic engine of growth, and it is this which creates interesting investment opportunities,' he said. - Reuters